Government Debt Securities Management August 11th, 2017
Directorate of Government Debt Securities Directorate General of Budget Financing and Risk Management Ministry of Finance of The Republic of Indonesia Outline
1 Introduction 3
2 Legal Framework of Government Debt Securities 11
3 Front Office Operations 15
4 Accessing International Capital Market 26
5 Developing Government Securities 32 Introduction Organizational Structure
Directorate of Government Debt Securities
Division Division Division Division
Government Debt Financial & Government Debt Government Debt Securities Government Debt Securities Portfolio Securities Market Regulation and Securities Market Management Development Performance Analysis Evaluation
1 Director, 4 Deputy Director that each of Deputies has 4 Managers
4 Milestone of GDS Management
5 Financing Trend, 2006 – 2017
3.00 370 2.50 2.41 2.50 320 2.33 2.35 2.25 270 2.00 1.80 220 1.58 1.50 170 1.26 1.14
1.00 120 0.73 0.87 70 0.50
20 0.08 - -30
-80 (0.50) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2017** Gov't Securities (Net) 35.99 57.17 85.92 99.47 91.10 119.86 159.70 224.67 264.63 362.30 364.90 399.90 Domestic Loan (Net) - - - - 0.39 0.62 0.80 0.47 0.95 0.80 3.39 1.49 Foreign Loan (Net) (26.57) (26.58) (18.41) (12.42) (4.57) (17.80) (23.46) (5.81) (12.35) 15.30 2.53 (16.79) Others/Non Debt (Net) 20.00 9.14 16.56 25.53 4.62 28.26 38.12 18.05 (4.33) (55.20) (69.01) (54.50) Budget Deficit, % of GDP 0.87 1.26 0.08 1.58 0.73 1.14 1.80 2.33 2.25 2.50 2.35 2.41
Notes: * Revised Budget 2016 ** Budget 2017 6 Government Budget FY 2016-2017
In trillion IDR 2016 2017 Description (IDR Trillion) Audited ∆ R-Budget to % Realization Budget R-Budget Outlook 1H Realization Realization Budget to Budget
A. Revenues and Grants 1,555.9 1,750.3 1,736.1 1,736.1 (14.2) 718.2 41.0% I. Domestic Revenue 1,546.9 1,748.9 1,733.0 1,733.0 (15.9) 718.0 41.0% 1. Tax Revenue 1,284.9 1,498.9 1,472.7 1,472.7 (26.2) 571.9 38.2% 2. Non Tax Revenue 262.0 250.0 260.2 260.2 10.2 146.1 58.4% II. Grants 9.0 1.4 3.1 3.1 1.7 0.2 15.5% B. Expenditure 1,864.3 2,080.5 2,133.3 2,098.9 52.8 893.3 42.9% I. Central Government Expenditure 1,154.0 1,315.5 1,367.0 1,343.1 51.5 498.6 37.9% 1. Ministerial Spending 684.2 763.6 773.1 769.2 9.5 263.9 34.6% 2. Non Ministerial Spending 469.8 552.0 593.9 573.9 41.9 234.6 42.5% II. Transfer to Region and Village Fund 710.3 764.9 766.3 755.9 1.4 394.8 51.6% 1. Regional Transfer 663.6 704.9 706.3 697.7 1.4 360.4 51.1% 2. Village Fund 46.7 60.0 60.0 58.2 - 34.4 7.3% C. Primary Balance (125.6) (109.0) (178.0) (144.3) (69.0) (68.2) 62.6% D. Surplus (Deficit) (308.3) (330.2) (397.2) (362.9) (67.0) (175.1) 53.0% % of GDP (2.49) (2.41) (2.92) (2.67) (0.51) (1.29) E. Financing 334.9 330.2 397.2 362.9 67.0 209.4 63.4% I. Debt Financing 403.0 384.7 461.3 427.0 II. Investment Financing (89.08) (47.49) (59.73) (59.73) III. Loan 1.7 (6.41) (3.67) (3.67) IV. Guarantee (0.65) (0.92) (1.0) (1.0) V. Others 19.56 0.3 0.3 0.3 7 Government Securities Indicative Financing Plan 2017
Indicative Target (IDR bn) Instruments Domestic Issuance 2017 Budget Government Securities (Net) 399,993 Weekly Auction: . Conventional Securities: 24x Redemption 162,842 . Islamic Securities: 24x Cash Management 119,000 Non-Auction: Buyback 3,000 . Retail bonds . Private Placements: Based on request Government Securities (Gross) 684,835 International Bonds Issuance (USD, EUR, JPY-denominated) Composition
Domestic 79% Issuance of International Bonds as complement to avoid Auction 93% crowding out in domestic market consists of USD, YEN or Non-Auction 7% EURO global bonds; International Bond 21% International bond issuance can be maximized up to 25% from gross target, depends on financing need. Front loading issuance for budget financing Issuance targets for GDS, Sukuk and ATM target Government Securities issuance in semester I: • Target: 57.4% from gross issuance target Government Debt Securities (SUN): 71 %; • Realization: 57.7% from gross issuance target Sukuk : 29% Rupiah Government Securities issuance in semester I: ATM for Government Securities (SBN): 6-8 years. • Target: 42.7% from gross issuance target • Realization: 43.1% from gross issuance target
8 Securities Financing Realization 2017
(In Million IDR)
Budget Realization % Realization to Budget 2017 (as of Aug 1, 2017) Budget 2017
Government Securities Net 399,992,586 314,321,445 78.58% Government Securities Maturing in 2017 and Buyback 284,735,024 177,757,300 62.43% Issuance Need for 2017* 684,727,610 492,078,745 71.86% Government Debt Securities (GDS) 353,244,478 IDR Denominated GDS 251,223,000 -Coupon GDS 130,880,000 -Conventional T-Bills 119,950,000 -Private Placement 393,000 -Retail Bonds - International Bonds 102,021,478 -USD GMTN 73,825,500 -Euro GMTN 15,352,390 -Samurai Bonds 12,117,580 -Domestic Foreign Denominated Bonds 726,008 Government Islamic Debt Securities 138,834,267 Domestic Government Islamic Debt Securities 98,865,267 - IFR/PBS/T-Bills Sukuk (Islamic Fixed Rated Bond/Project Based Sukuk) 82,827,957 - Retail Sukuk 14,037,310 - Indonesia Hajj Fund Sukuk 2,000,000 Global Sukuk 39,969,000
*Adjusted with issuance related to cash management realization. 9 Outstanding Central Government Debt By Instrument
June 17 Description 2011 2012 2013 2014 2015 2016*) Nominal % a. Foreign Loan (in billion USD) 68.4 63.6 58.4 54.2 54.4 54.0 54.6 19.6% Bilateral 42.1 37.2 31.5 26.9 24.7 23.2 23.3 8.4% Multilateral 23.5 23.8 23.7 23.5 26.1 27.5 27.6 9.9% Commercial 2.8 2.5 3.3 3.8 3.6 3.3 3.2 1.2% Suppliers 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0% b Domestic Loan (in billion USD) 0.1 0.19 0.2 0.3 0.3 0.4 0.4 0.1% c. Government Securities (in billion USD) 131.0 140.8 136.3 155.2 174.7 207.0 223.7 80.3% Foreign Currency Denominated 21.6 27.4 32.8 36.7 47.8 57.1 59.5 21.3% Rupiah Denominated 109.4 113.4 103.5 118.5 126.9 149.9 164.2 58.9% Total Central Government Debt 199.5 204.5 194.9 209.7 229.4 261.3 278.7 (in billion USD) Total Central Government Debt 1,808.9 1,977.7 2,375.5 2,608.8 3,165.1 3,511.0 3,706.5 (in trilion IDR) Exchange Rate Assumption (IDR/USD1) 9,068.0 9,670.0 12,189.0 12,440.0 13,795.0 13,436.0 13,319.0 GDP (in trillion IDR) 7,831.7 8,615.7 9,524.7 10,542.7 11,540.8 12,406.8 Debt to GDP Ratio 23.1% 23.0% 24.9% 24.7% 27.4% 28.3%
*) Preliminary Figures
10 Sound Government Debt Portfolio Management
Stable Debt to GDP Ratio Over the Years Well Diversified Across Different Currencies
Government debt/GDP (%) 2% 2% 1% 1% 3% 3% 300 30.0% 28.3% 28.1% 3% 3% 4% 27.4% 4% 3% 3% 7% 9% 8% 7% 12% 24.9% 24.7% 14% 250 54.58 25.0% 23.0% 54.37 31% 29% 29% 32% 200 54.74 20.0% 24% 29% 54.47 63.76
58.61 USD bn USD 150 15.0%
223.7 100 206.95 10.0% 174.7 59% 155.24 56% 57% 55% 58% 140.76 136.27 53% 50 5.0%
0 0.0% 2012 2013 2014 2015 2016 June-2017*) 2012 2013 2014 2015 2016 June-2017
Securities Loan Gross debt/GDP (%)
IDR USD JPY EUR Other *) Using GDP assumption in 2017 Budget
11 Risk Indicators
Interest Rate Risk Exchange Rate Risk
Variable Rate Ratio (%) Refixing Rate (%) FX Debt to GDP Ratio (%)** FX Debt to Total Debt Ratio (%) 23.2 22.5 46.7 21.0 20.7 44.4 43.4 44.5 19.3 41.8 40.8 17.8 16.2 16.0 14.8 13.7 12.3 11.3
10.2 11.7 10.7 12.2 11.7 11.0
2012 2013 2014 2015 2016*) Jun-17 2012 2013 2014 2015 2016*) Jun-17 Debt Average Time to Maturity Debt Maturing
ATM (in years) In < 1 year In < 3 year In < 5 year 9.7 9.7 9.6 9.4 39.1 34.7 36.5 32.4 33.4 33.9 9.0 8.9 23.0 23.5 21.5 21.8 20.1 21.4
9.1 7.2 8.6 7.7 8.4 6.6
2012 2013 2014 2015 2016*) Jun-17 2012 2013 2014 2015 2016*) Jun-17
*) Preliminary figures **) Using GDP assumption in 2017 Budget -Risk indicators are improving amidst pressure from rupiah depreciation -Risk indicators show improvements in interest rate risk and stability in exchange and refinancing risks 12 Legal Framework of Government Debt Securities Regulatory Framework
LAW
Law No. 24 Year 2004 concerning Government Debt Securities
GOVERNMENT REGULATIONS Government Regulations No. 76 Year 2005 concerning Management, Responsibility, and Information Publication of Government Debt Securities Management
REGULATIONS OF FINANCE MINISTER
-- Issuance through auction -- -- Issuance through private placement mechanism -- -- Securities buyback -- -- Issuance of foreign currency denominated bonds -- -- Issuance of retail bonds --
REGULATIONS OF DIRECTOR GENERAL -- Administrative requirements and registration for resident -- -- Guidance of the use of PDs trading infrastructure --
14 The Law Number 24 Year 2002 (1)
Definition: Government Debt Securities are financial securities in the form of letters of indebtedness from the government, in Rupiah as well as in foreign currencies, which payments of the principal and interests are guaranteed by the Republic of Indonesia, in accordance with validity period thereof.
Types of Government Securities:
• T-Bills: Government Debt Securities with a period of up to and including 12 (twelve) months, with the interest in the form of a discount. • Government Bonds: Government Debt Securities with a period of more than 12 (twelve) months with coupons and/or with the interest in the form of a discount.
15 The Law Number 24 Year 2002 (2)
Objective Government Securities shall be issued for the following purposes:
• Financing deficits of the State Budget; • covering short-term cash shortfall due to the mismatch between the cash flows of revenues and expenditures in the State Cash Accounts within one fiscal year; • managing the state debt portfolio;
Authorization to issue Government Securities is embedded and implemented by the Minister of Finance
• Consultation with Central Bank • Should be approved by the parliament (on a net basis)
The fund for the payment of interests and principal amounts are provided annually in the Budget
Central Bank acts as central registry and Fiscal Agent (payment, clearing and settlement). Central Bank also acts as auction agent.
16 Front Office Operations Primary Dealership and Establishing Benchmark Series
Strengthening the Government Debt Securities market by: 1. Helping to build stable, dependable source of demand for securities in the primary market. Primary 2. Providing liquidity in the secondary market 3. Devoting capital resources for market making (as a Dealership proprietary buyer) 4. Building distribution channels 5. Providing market information including prices, volumes and spreads between bids and offer
Establishing 1. To improve the government bond market liquidity 2. To provide a reference yield for private sector issuing Benchmark corporate bonds Series 3. To support the overall yield curve
18 Government Securities Continuous efforts in providing diversified instruments
Government Securities (GS)*
Government Debt Securities (GDS) Government Sharia Securities (SUKUK)
Government Bonds (GB) Treasury Bills By Tenor
GB - Domestic USD GB - Foreign Currency GB – Rupiah By Currency
Samurai Bonds Global Bonds Global Bonds Variable Rate Fixed Rate By Coupon Type (JPY) (USD) (Euro) (Rp) (Rp)
Variable Rate Fixed Rate Zero Coupon (Regular) (Regular) (Regular) Savings Bond Ritel Retail Bond
Notes: *) GS consist of Tradable and Non Tradable GS 19 Product Development
• Retail obligation, sold through a • A fixed coupon selling agent. • First issuance in 1999 • Issued through book building • Issued through auction • Minimum order IDR5 million • Coupon is paid every 6 months • ORI, first issuance in 2006 • SBR, first issuance in 2014
• T’Bills (maturity less than 12 • A variable coupon months) • First issuance in 1999 • Government issues 12 • Issued through auction months • Rate determined every 3 months & 3 months T’Bills based on 3 months-T’Bills • Issued through auction • Discount paper • First issuance in 2007
• First issuance in 2007 • No coupon payment schedule • Sold at discount price and • Non tradable securities nominal will be paid at its • First issued in 2009 to local maturity time. government
20 Product Development (2)
• Issued in international capital • USD Bond issued in market domestic market • Dominated in US$, • First issued in 2013 first issued in 2004 • Dominated in EUR, first issued in 2014
• Issued in Japan capital market • Denominated in Yen Japan • First issued in 2009 under JBIC guarantee
21 Issuance
Method of Issuance
1 Auction
2 Private Placement
3 Book Building
22 Auction Mechanism (IDR and USD in Domestic Market)
23 Private Placement Mechanism
24 Retail Bond Issuance Process - Book Building Mechanism
Request for SBR/ORI Selling Agent Proposal Selling Issuance Plan Selection Process Agent
Allotment & Coupon Marketing Setelment Determination
25 Debt Switch & Buyback
Objectives
Debt management program to reduce the refinancing risk, smoothening maturity (redemption) profile, as well as Debt Switch maintaining liquid series. Exchange of illiquid short dated series, with liquid long dated benchmark.
Debt management program to stabilize market, debt portfolio management (reducing high coupon and illiquid Buyback series), and to reduce refinancing risk (short dated debt securities).
The amount is flexible, as long as the net issuance target is achieved.
26 Debt Switch & Buyback Mechanism DSUN - MoF
Auction Plan Announcement 1 day before 3 5 Tabulation, allocation 1 Rules and Monitoring on auction Auction 4 Registration Data Offering DSS-MoF 2 Decision Support System Dealer A Offering 6 Auction results, MOFiDS Determined by MoF Ministry of Finance Dealer B Dealing System 7 Settlement Awarded Auction Results Offers Announcement BI-SSSS v.s. Primary BI-RTGS Dealers Settlement
8 Settlement
Payments Securities delivery (govt bonds) 27 Direct Transaction
Direct transaction is a transaction (buy or sell) of government securities between government and eligible parties (Primary Dealers, Central Bank, Deposit Insurance Corporation), through Dealing Room facility.
Objectives:
• Stabilizing the government securities market. • Managing the portfolio of government securities. • Achieving net government securities target.
28 Accessing International Capital Market Objectives & Strategy
Objectives: . Raise capital to meet financing needs . Diversify financing sources . Creating a benchmark for valuation of sovereign credit risk and facilitate future issuance by sovereign, local government, public enterprises . Reduce crowding out effect in domestic bond market . Promote credit story of Indonesia
Global Bond Issuance Strategy:
1 Volume: less than 30% of total gross issuance target
2 Timing: considering financial market condition e.g. interest rate and market liquidity
Instruments’ composition: based on cost calculation, potential demand, risk management 3 and prioritizing global bond in USD (more than 50%)
4 Currency: USD, EUR, JPY
Directorate General of Debt Management30 Risk Entailed and Issuance Format
Risk Entailed
Foreign Exchange Risk 1 the probability to adjust prices and costs to offset changes in exchange rate.
Rollover Risk 2 when debt is about to mature and needs to be rolled over into new debt. If interest rates rise adversely, countries would have to refinance their debt at a higher rate and incur more interest charges in the future. Issuance Format
Global Medium Term Notes Stand Alone Issuance
Benefits: Drawback: 1) High flexibility in global bond issuance since 1) Less flexibility, since the time required for the time required for the transaction is the transaction is relatively longer shorter 2) Full documentation is required for each 2) Issuance costs and documentation are issuance relatively cheaper than stand alone issuance 3) Effectively achives global distribution including Qualified Institutional Buyers (QIBs at USA) 4) Less onereous documentation requirements 31 Directorate General of Debt Management International Bonds Issuance Process
Global Medium Term Note (GMTN) Process
Preparation Selection Documentation Execution
• Bring down due - Technical proposal evaluation - Offering circular diligence - MoF Decision - Beauty Contest - Listing requirement • Pricing - Selection Committee - Expenses Negotiation - Legal document • Settlement - Appointment of Panel, - Rating confirmation - Request For Proposal • Listing - JLM and LC - Due diligence and TOR • Signing - Road show (optional) - Engagement Letter • Closing Notes: • Total amount of GMTN program: USD 50 billion (up to 2017) • Current balance of GMTN program: USD 9.97 billion Samurai Bond Process – Private Placement with JBIC Guarantee
Preparation Selection Documentation Execution
- Selection Committee - TOR and RfP - Panel Appointment • Price Guidance - Preliminary discussion - Appointment of JLM • Bookbuilding with JBIC: • Private Placement Memorandum • Program Agreement & LC • Single spread • Non Deal road show presentation • Draft Indemnity - Appointment of CCB and maximum yield Agreement • Other Legal Documents • JBIC guarantee fee and IPAA • Pricing - Preparation for - Engagement Letter • Settlement/Closing Underlying Transaction
Notes: • CCB: Commissioned Companies for Bondholders • IPAA: Issuing and Paying Agent and Administrative 32 Directorate General of Debt Management International Bonds Issuance Process
Samurai Bond Process – Private Placement without JBIC Guarantee
Preparation Selection Documentation Execution
• Price Guidance - Panel Appointment • Bookbuilding - Appointment of JLM & LC • Private Placement Memorandum - Selection Committee • Single spread -Appointment of IPAA • Non Deal road show presentation - TOR and RfP and maximum yield (Fiscal Agent) • Other Legal Documents • Pricing - Engagement Letter • Settlement/Closing
Samurai Bond Process – Public Offering
Directorate General of Debt Management Preparation Selection Documentation Execution
- Panel Appointment • Price Guidance - Appointment of JLM • Securities Registration Statement • Bookbuilding - Selection Committee & LC (SRS) • Single spread - TOR and RfP - Appointment of IPAA • Non Deal road show presentation and maximum yield (Fiscal Agent) • Other Legal Documents • Pricing - Engagement Letter • Settlement/Closing
33 Investor Relations Programs
The role of investor relations programs:
1 Provide economic data and information on economic policies, either directly or through a website.
Explain the context behind data releases and, therefore, actively shape investor sentiment in line 2 with fundamentals.
3 Correct inaccurate information and dispel false rumors.
4 Supply information on international and domestic government securities.
Provide answers to questions of both retail and institutional investors either directly or through e- 5 mail.
6 Serve as a sounding board for sovereign financing operations.
Help policymakers interpret evolving market techniques, practices, and sentiment. 7
The programs include: Non Deal Road show Investor Teleconference Investor Mailing List Information/Data Dissemination through website
34 Directorate General of Debt Management The Need for Credit Rating
Credit rating is measurement of willingness and ability of debitor to service its obligations.
Credit ratings allow the issuer to tap a wide investor base as most fund managers are required to invest only in rated securities.
The role of credit ratings:
• To overcome the asymmetry of information or lack of familiarity with a given country. • To indicate that a country’s investment climate, creditworthiness, and capacity to service existing debt. • To provide an independent mechanism to validate and encourage the pursuit of appropriate macroeconomic policies and the government’s commitment to the adoption of market-friendly economic reform. • To promote good governance and foster transparency in government decision-making and in the collection and dissemination of information. • To promote investments by institutional and retail investors in mature markets Directorate General of Debt Management35 Credit Rating Improvement
(RHS)
Directorate General of Debt Management36 Primary Market Performance 2017: Global Bonds (USD)
Issuer RI0122 RI0127 RI0147 Issuer Republic of Indonesia Issuer Rating Baa3 (Moody’s) / BBB- (Fitch) Issue Rating Baa3 (Moody’s) / BBB- (Fitch) Issue USD Fixed Rate USD Fixed Rate USD Fixed rate
Size USD$0.75bn USD$1.25bn USD$1.50bn Pricing/Settlement December 1, 2016 / December 8, 2016 Date Maturity January 8, 2022 January 8, 2027 January 8, 2047 Coupon 3.700% 4.350% 5.250% Re-offer Yield/Price 3.750%/ 4.400%/ 5.300%/ 99.767% 99.592% 99.246% Format Rule 144 A / Reg S Listing SGX-ST and Frankfurt Stock Exchange Total Book Order USD5.20bn USD3.50bn USD3.30bn
34 Primary Market Performance 2017 Global Bonds (USD) Allocation by Geography RI0147 RI0122 RI0127
1% 3% 18% 29% 22% 38% 48% 58% 26% 12% 27% 18%
Indonesia Asia (Ex. Indonesia) Europe USA Indonesia Asia (Ex. Indonesia) Europe USA Indonesia Asia (Ex. Indonesia) Europe USA Allocation by Investor Type RI0122 RI0127 RI0147
27% 9% 2% 3% 5%0 18% 12% 5% 53% 2% 6% 22% 62%
74%
Asset Managers/ Fund Manager Asset Managers/ Fund Manager Asset Managers/ Fund Manager Bank Bank Bank Central Bank/Sovereign Funds Central Bank/Sovereign Funds Central Bank/Sovereign Funds Insurance/ Pension Funds Insurance/ Pension Funds Insurance/ Pension Funds Private Banks Private Banks Private Banks 35 Primary Market Performance 2017: Samurai Bonds (JPY)
Issuer Republic of Indonesia
Issuer Rating Baa3 (Moody’s) / BBB- (S&P) / BBB- (Fitch) / BBB- (R&I) / BBB- (JCR)
Format Samurai Bonds Type of Notes Senior Unsecured
Bond Rating Baa3 (Moody’s) / BBB- (Fitch) / BBB- (R&I) Pricing Date May 31, 2017 Settlement Date June 8, 2017
Total Issue amount JPY 100bn
Series #1 #2 #3 Tenor 3yr FIX 5yr FIX 7yr FIX Trance Size JPY 40bn JPY 50bn JPY 10bn Coupon 0.65% 0.89% 1.04% Re-offer Spread +55bps +75bps +85bps
39 Primary Market Performance 2017: Samurai Bonds (JPY) Allocation by Geography RIJPY0620 RIJPY0622 RIJPY0624
100% 100% 100%
Asia Asia Asia Allocation by Investor Type RIJPY0620 RIJPY0622 RIJPY0624 18.0%
20.0% 25.0% 23.4% 26.0% 52.0% 1.8% 8.0% 8.8% 24.6% 6.8% 11.3% 5.0% 4.0% 2.0% 23.4% 15.0% 15.8%
9.3%
Life Insurance Asset Managers Regional Banks City Banks Trust Banks Specialized Banks Trust Banks Life Insurance Asset Managers Life Insurance Asset Managers Regional Banks Regional Banks Shinkins Others Shinkins Others Shinkins Others 40 Primary Market Performance 2017: Dual Currency (EUR & USD)
Issuer RIEUR0724 RI0727 RI0747 Issuer Republic of Indonesia Issuer Rating Baa3 (Moody’s) / BBB- (Fitch) Issue Rating Baa3 (Moody’s) / BBB- (Fitch) Issue EUR Fixed Rate USD Fixed Rate USD Fixed rate
Size EUR€1.00bn USD$1.00bn USD$1.00bn Pricing/Settlement July 11, 2017 / July 18, 2017 Date Maturity July 18, 2024 July 18, 2027 July18, 2047 Coupon 2.150% 3.850% 4.750% Re-offer Yield/Price 2.178%/ 3.900%/ 4.800%/ 99.820% 99.589% 99.209% Re-offer Spread +158bps - -
Format Rule 144 A / Reg S Listing SGX-ST and Frankfurt Open Market Total Book Order EUR4,3bn USD4.1bn USD3.2bn 41 Primary Market Performance 2017: Dual Currency (EUR & USD) Allocation by Geography RIEUR0724 RI0727 RI0747 2.5%
10% 15% 11% 13% 17% 38% 38% 35.5% 5% 25% 7% 16% 13% 22% 24% 8%
Indonesia Asia (Ex. Indonesia) Inggris Raya Indonesia Asia (Ex. Indonesia) Europe USA Jerman Swiss Itali Indonesia Asia (Ex. Indonesia) Europe USA Perancis Eropa lainnya USA Allocation by Investor Type RIEUR0724 RI0727 RI0747
7% 17% 10% 28%
14% 52% 55% 27% 56% 6% 11% 17%
Fund/Asset Managers Bank/ Private Banks Fund/Asset Managers Bank/ Private Banks Fund/Asset Managers Bank/ Private Banks
Central Bank/Sovereign Funds Insurance/ Pension Funds Central Bank/Sovereign Funds Insurance/ Pension Funds Central Bank/Sovereign Funds Insurance/ Pension Funds 42 42 Developing Government Securities Government Securities Market Development Framework
DEEP, ACTIVE, AND LIQUID MARKET Sufficient market capacity to absorb and efficient price/yield
DEMAND MARKET INFRASTRUCTURE SUPPLY PRIMARY MARKET
• Activities: Regular issuance (auction, book building), private placement Banks • Infrastructure: Auction system for domestic and global issuance, settlement Central Banks system for retail bonds Foreign Investors GOVERNMENT Insurance BOND: Pension Funds SECONDARY MARKET Mutual Funds Local Currency Corporates • Activities: Buyback, debt switch, securities lending facility Securities Houses Bonds Retail Investors • Infrastructure: LPS (Indonesia Deposit - Primary dealers quotation system Foreign Currency Insurance Corporation) - Trading system through IDX Denominated Bonds BLU (Public Service - INDOBeX Agency) - Electronic Trading Platform (ETP): for retail bonds (under development) SOE (State Owned TREASURY BILLS Enterprise) • Price Discovery Mechanism: Others - IBPA (Indonesia Bond Pricing Agency) - PLTE (Penerima Laporan Transaksi Efek) - Yield curve for benchmark series. • Repo Instruments and Derivatives: MRA, GMRA & Indonesia Government Bond Futures
REGULATION, SUPERVISION, INSTITUTIONAL SUPPORT, AND MARKET COMMUNICATION 44 Improving market infrastructure
UNDER DEVELOPMENT
ETP (Electronic Trading Platform) for secondary market MARKET MECHANISM Developing IGBF (Indonesia Government Bond Futures) Establishment of BI-SSSS
Establishment of primary dealers system for govt debt securities & PDs PRICE DISCOVERY quotation system MECHANISM Establishment of MoFIDs Establishment of IBPA (Indonesia Development of INDOBeX (Indonesia Bond Pricing Agency) Government Bond Index) Centralised transaction report Debt switch through many-to-many through PLTE and staple bonds mechanism GMRA as a standard master Yield curve for benchmark series agreement for repo transactions and all tenors Implementation of SID (Single Investor Identification)
BI-SSSS= Bank Indonesia – Scripless Securities Settlement System MoFIDS = Ministry of Finance Dealing System 45 Coordination among Authorities
Ministry of Finance Ministry of Finance
Indonesia Deposit FINANCIAL Insurance MARKET Bank FINANCIAL Corporation STABILISATION Indonesia MARKET (LPS) DEVELOPMENT Indonesia Financial Bank Services Indonesia Indonesia Authority Financial (OJK) Services Authority (OJK)
46 GDS* PRIMARY MARKET PERFORMANCE 2017 - Auction
[In Trillion IDR ] 160 5.00 Incoming Bids Awarded Bids % Bid to Cover Ratio (RHS) 4.72 “as of Aug 2, 2017” 4.50 140 Average incoming bids 2017 = IDR36.7T/auction 4.00 120 Average incoming bids 2016 = IDR25.55T/auction Average awarded bids 3.50 2017= IDR16.7T/auction 100 3.00 Average awarded bids 2016= IDR13.37T/auction 2.60 2.62 80 2.44 2.38 2.50
2.14 1.97 2.01 1.89 1.94 1.93 1.83 2.00 60 1.73 1.74 1.75 1.58 1.39 1.31 1.50 40 1.11 1.00
20 0.50
- -
*) Surat Utang Negara (SUN) Average Incoming Bid 2016 = IDR25.55T while Average Awarded Bid 2016 = IDR13.37T 47 GS Maturity Profile S-1 2017
[In Trillion IDR ] 220
200
180
160
140
120
100
80
60
40
20
0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2040 2041 2042 2043 2044 2045 2046 2047 TOTAL 142 192 204 124 169 154 120 199 106 160 116 72.6 93.4 25.7 93.3 64.3 48.2 92.4 21.3 84.3 39.8 42.3 0 7.53 7.53 17.2 43.4 29.9 54.8 26.6 16.6 20 SUKUK USD 0 13.3 20 0 0 13.3 0 20 26.6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SUKUK IDR 48 33.3 31.5 38.8 0 1.22 0 0 1.55 0 3.79 0 0 2.18 0 0 0 0 0 4.11 10.1 0 0 7.53 7.53 0 0 9.93 0 0 0 0 SUN JPY 0 2.7 11.6 14.7 4.56 13.3 0 1.21 6.6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SUN EUR 0 0 0 0.74 14.9 0 22.3 0 18.6 0 0 22.3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SUN USD 13.3 25.3 26.6 26.6 33.3 36.6 33.3 26.6 26.6 36 16.6 0 0 0 0 0 0 0 21.3 0 20 26.6 0 0 0 0 30 20 26.6 26.6 16.6 20 SUN IDR 80.9 118 114 43.1 116 89.6 64.4 151 26 124 95.7 50.3 93.4 23.5 93.3 64.3 48.2 92.4 0 80.2 9.63 15.7 0 0 0 17.2 13.4 0 28.2 0 0 0
48 GDS Secondary Market Performance
Yield of Benchmark Series [In IDR ] Average Daily Trading (%) 22 40.00 As of Aug 1, 2017 OUTRIGHT REPO BANK REPO BI As of Aug 1, 2017 20 5Y 10Y 15Y 20Y 18 6.68 (5Y), 6.88 (10Y), 7.33 (15Y), 7.56 (20Y) 30.00 16 15.84 14 15.34 15.50 15.59 12 20.00 10 10.15 8.80 8 0.82 0.75 6 6.46 10.00 3.07 0.72 0.61 0.41 4 Source: IBPA 1.54 0.76 0.16 0.38 12.36 11.40 0.25 9.54
7.91 9.38 9.20
Nov'14 Nov'15 Nov'16 Nov'11 Nov'12 Nov'13
Feb'12 Feb'13 Feb'14 Feb'16 Feb'17
2 Feb'15
May'12 May'13 May'14 May'15 May'16 May'17
Aug'11 Aug'17 Aug'13 Aug'14 Aug'15 Aug'16 Aug'12 5.88 5.73 5.31 - 2011 2012 2013 2014 2015 2016 Mar-17 Jun-17 Jul-17
Quotation of Benchmark Series (ao Aug 1, 2017) Foreign Ownership V. 10Y Yield Movement
SERIES/ PRICE/ A DAY 5 DAYS MONTH TO YEAR TO CHANGES (bps) TODAY A DAY 5 DAYS TENOR YIELD BEFORE BEFORE DATE DATE MTD YTD BEFORE BEFORE FR0061 PRICE 101.28 101.13 100.99 101.13 97.96 15 29 15 332 5Y YIELD 6.68% 6.72% 6.75% 6.72% 7.47% (4) (7) (4) (79) FR0059 PRICE 100.80 100.48 100.60 100.48 94.98 32 20 32 582 10Y YIELD 6.88% 6.93% 6.91% 6.93% 7.71% (5) (3) (5) (83) FR0074 PRICE 101.50 101.26 101.75 101.26 101.18 24 (25) 24 32 15Y YIELD 7.33% 7.36% 7.31% 7.36% 8.13% (3) 2 (3) (80) FR0072 PRICE 106.88 106.26 106.96 106.26 97.19 62 (8) 62 969 20Y YIELD 7.56% 7.62% 7.55% 7.62% 7.81% (6) 1 (6) (25) 49 Ownership of Tradable Domestic Government Securities
(in trillion IDR) Description Dec-14 Dec-15 Dec-16 Jan-17 Jun-17 01-Aug-17 Banks* 375.55 30.98% 350.07 23.95% 399.46 22.53% 493.82 27.27% 399.19 20.45% 550.79 27.95% Govt Institutions (Bank Indonesia**) 41.63 3.43% 148.91 10.19% 134.25 7.57% 53.31 2.94% 175.89 9.01% 32.59 1.65% Bank Indonesia (gross) 157.88 8.90% 163.63 9.03% 180.28 9.23% 180.25 9.15% GS used for Monetary Operation 23.63 1.33% 110.32 6.09% 4.39 0.22% 147.66 7.49% Non-Banks 795.17 65.59% 962.86 65.87% 1239.57 69.90% 1264.02 69.79% 1377.15 70.54% 1387.53 70.40% Mutual Funds 45.79 3.78% 61.60 4.21% 85.66 4.83% 87.84 4.85% 91.56 4.69% 91.80 4.66% Insurance Company 150.60 12.42% 171.62 11.74% 238.24 13.43% 241.25 13.32% 254.21 13.02% 257.31 13.06% Foreign Holders 461.35 38.05% 558.52 38.21% 665.81 37.55% 685.51 37.85% 770.55 39.47% 776.24 39.38% Foreign Govt's&Central Banks 103.41 8.53% 110.32 7.55% 120.84 6.81% 118.91 6.57% 131.94 6.76% 132.92 6.74% Pension Fund 43.30 3.57% 49.83 3.41% 87.28 4.92% 86.95 4.80% 89.11 4.56% 89.85 4.56% Individual 32.80 2.71% 42.53 2.91% 57.75 3.26% 57.69 3.19% 60.49 3.10% 60.02 3.05% Others 61.32 5.06% 78.50 5.37% 104.84 5.91% 104.78 5.79% 111.23 5.70% 112.31 5.70% Total 1,212.35 100% 1,461.85 100% 1,773.28 100% 1,811.14 100% 1,952.23 100.00% 1,970.91 100.00% 1) Non Resident consists of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company, and Pension Fund. 2) Others such as Securities Company, Corporation, and Foundation. *) Including the Government Securities used in monetary operation with Bank Indonesia. **) net, excluding Government Securities used in monetary operation with Banks.
50 Yield of Govt Bonds on Peers’ Market
[in percentage] LCY 10 Year MTD Latest Yield YTD Change 22 Government Change (%) (BP) Bonds (BP) 20
HK 1.542 -43.2 +2.4 18
ID 6.925 -104.8 -2.6 16
JP 0.078 +3.2 -0.5 14
KR 2.260 +16.8 +3.3 12
MY 3.988 -24.0 -0.5 10
PH 4.989 +36.1 +31.5 8
SG 2.130 -34.4 +3.4 6 4 TH 2.413 -23.5 -1.8 1 Aug '17 25 Jul '17 3 Jul '17 9 Feb '12 2 22 Sep '11 27 Oct '08 13 Sep'05 US 2.253 -19.1 -4.1 - VN 5.456 -91.9 +1.0 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y 20Y
• Market Watch as of August 2, 2017 • Source: Asian Bonds Online Source: IDMA, Bloomberg, as of Nov. 22 2016 51 Crisis Management Protocol & Bond Stabilization Framework Implement Measures to Manage External Volatility
Pre-emptive Measures Bond Stabilization Framework Implementing Crisis Management Protocol First Line of Defense (CMP) Buyback fund at DG of Budget Financing and Risk Management Implementing Bond Stabilization Framework State’s Budget (BSF) Investment fund at Public Service Agency (BLU) (min. level Aware) Enhancing coordination between government State Owned Enterprises Related BUMNs (min. level Aware) institutions and continuous dialogue with (BUMN)’s Budget market participants Social Security Organizing BPJS (min. level Aware) Specific policies in place to address crises Agency (BPJS)’s Budget enacted in 2015 budget law SwapCrisis facility Managementarrangements based Protocol on Second Line of Defense Indicatorsinternational to determinecooperation crisis level of State General Treasury Account (Rekening KUN) (min. level Alert) Government Securities Market condition State’s Budget (normal, aware, alert, crisis) Accumulated cash surplus (SAL) (min. Level Crisis) Several market indicators that are monitored State Owned Enterprises daily: Related BUMNs (min. level Alert) - Yield of benchmark series; (BUMN)’s Budget - Exchange rate; Social Security Organizing BPJS (min. level Alert) - Jakarta Composite Index; Agency (BPJS)’s Budget - Foreign ownership in government securities Policies to address the crisis at every level : - Repurchase the government securities at secondary market - Postpone or stop the issuance 53 Foreign Investor Activity Dominated By High Quality Long Term Investors
Foreign Ownership - Proportion by Tenor Monthly Net Buyer (Seller) - Non Resident
[In Trillion IDR ] 100% Net Inflows [LHS] Net Inflows Over Total Foreign Holdings [RHS] 50.00 0.1
36.0% 36.2% 36.0% 39.48 As of July 17, 2017 0.08 80% 38.8% 40.00 44.5% 42.8% 44.7% 31.33 0.06 30.00 22.59 23.04 21.34 21.37 22.03 19.80 20.09 19.70 0.04 18.30 60% 20.00 14.67 16.89 14.40 15.95 15.04 12.49 13.17 10.33 0.02 9.75 8.38 9.46 9.06 10.00 6.84 6.31 5.39 6.38 4.10 39.5% 39.1% 0 38.1% 38.2% 37.5% 37.8% 40% 0.00 32.5% (0.41) -0.02 (3.59) (3.90) (2.30) (4.21) 37.4% 35.9% 36.2% (10.00) (7.96) (7.60) 32.0% 33.6% 38.0% (9.35) -0.04
20% 39.0% 17.4% 17.8% 18.2% (20.00) (19.84) 12.9% 15.2% (19.58) -0.06 17.8% 11.8% 5.4% 5.1% 3.7% 5.3% 5.2% (30.00) -0.08 1.3% 2.0% 4.6% 3.2% 3.5% 3.4% 5.4% 4.4% 0% 5.2%
Dec 13 Dec 14 Dec-15 Dec-16 Jan-17 Jun-17 17-Jul-17
Jul-14 Jul-15 Jul-16 Jul-17
Jan-15 Jan-16 Jan-17
Sep-14 Sep-15 Sep-16
Nov-14 Nov-15 Nov-16
Mar-16 Mar-17
0-1 ≥1-2 ≥2-5 ≥5-10 ≥10 %Foreign Ownership of Total Mar-15
May-15 May-16 May-17
54 Domestic Institutional Investors
FSA (OJK) Regulation No 1/POJK.05/2016* on Investment in Government Securities for Non-Bank Financial Institution
General Insurance, BPJS Ketenagakerjaan (The Social Security BPJS Kesehatan (Healthcare Life Insurance Company Reinsurance & Guarantee Employer Pension Fund Company Administration Body for Social Security Agency) Employment)
Min. 50% of total Min. 20% of total Min. 10% of total Min. 20% of total investment of investment ( by investment ( by investment ( by Employment Social Dec. 31 2016). Dec. 31 2016). Dec. 31 2016) Security Fund (by Dec. 31 2016). Min. 30% of total investment of BPJS Kesehatan (by Dec. 31 2016). Min. 30% of total Min 30% of total Min. 20% of total Min 30% of total portfolio investment ( by investment ( by investment ( by investment of BPJS Dec. 31 2017). Dec. 31 2017). Dec. 31 2017). Ketenagakerjaan (by Dec. 31 2016)
*Since November 14, 2016 this regulation is revised to be FSA (OJK) Regulation No.36/POJK.05/2016 . The revised regulation has added SOE infrastructure bonds as instrument other than Gov’t Securities that can be utilized to fulfill the minimum investment requirement.
55 Domestic Investor Activity Increasing Demand From Non-bank Institutional
26.08 Others 17.44
15.22 Individual 12.12
37.45 Pension Fund 6.52
66.62 Insurance Company 21.02
107.29 Foreign Holders 97.17
24.06 Mutual Fund 15.81
7.78 Bank Indonesia** 18.63
26.94 Banks* 63.17
- 20 40 60 80 100 120 IDR tn
NET BUY 2016 NET BUY 2015 Challenges
How to mitigate risk resulted from high foreign participation in the domestic market
How to improve liquidity of govt securities: Benchmark; Non-benchmark series; and 3M SPN (Treasury Bills)
How to increase repo transactions among market players
57 END OF PRESENTATION
Directorate General of Budget Financing and Risk Management Ministry of Finance of Republic of Indonesia
Directorate of Government Debt Securities Frans Seda building, 4th floor, Jl. Wahidin Raya No. 1, Jakarta Pusat – Postal Code: 10710 Phone: +6221 3810175 Fax. : +6221 3846516 Site: www.djppr.kemenkeu.go.id Financing Strategy 2017 General Objective & Policy
To manage debt-to- To GDP ratio strengthen To increase the function debt To meet of Investor management financing Relations efficiency To support Unit needs at market optimum cost development and tolerable risk To optimize To the use of General optimize external and currency domestic Policy mix of To enhance public loans issuance accountability as part of transparent Government debt management To direct To achieve debt use to optimal productive participatio activities n of society To conduct active debt portfolio
59 Integrated Reforms to Bolster Growth
International acknowledgement from various agencies and improving global perception
Continuous Improvement in Indonesia’s Credit Quality Ease of Doing Business1
2008 2009 2010 2011 2012 2013 2014 2015 2016 50 In May 2017, S&P upgraded Indonesia’s long-term sovereign credit ratings to an Lower rank is investment grade rating of ‘BBB-’ with stable outlook, from ‘BB+’. This reflects: 60 better Reduced risks to Indonesia’s fiscal metrics More realistic revenue targets 70 69 Effective expenditure management Increased predicability of economic and financial policy 80 S&P stated that long-term ratings could be raised if there are significant improvements in the external and fiscal balance 90 91
100 98
In February 2017, Moody’s changed its outlook on Indonesia to positive (Baa3). The 110 positive outlook reflects their view of: Improved policy effectiveness (as evidenced by positive improvements in 120 123 institutions, track record of macrostability and fiscal stability) Expected reduction in vulnerability to external shocks due to narrowing current 130 130 account deficits and a slower growth in private sector external debt 140
150 In July 19, 2017, Fitch affirmsIndonesia ast BBB- with outlook Positive. The positive rating reflects: Al low government debt burden Strong macroeconomic policy with focus on macro stability and sustainable growth Indonesia India Brazil Philippines Turkey Further increase in foreign exchange buffers Improving business environment
1. Source: World Bank.
60